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Legislation sponsored by Assembly Democrats Angel Fuentes, Gordon Johnson, John Burzichelli, and Eliana Pintor Marin to establish a five-year pilot program that would encourage private investment in preventive and early intervention health care to reduce public costs was approved Thursday by an Assembly panel.

"Providing adequate healthcare to our neediest residents can be costly to service providers, governments and residents," said Fuentes (D-Camden/Gloucester). "We cannot continue to do things the old way with limited resources and expect different results. We need to be innovative. This bill seeks to reduce healthcare costs in the long run while increasing the wellness of our residents without raising taxes. This is a new way of looking at accomplishing our goals."

The bill (A-2771) would establish a five-year social innovation loan pilot program for the purpose of encouraging private investment in preventive and early intervention health care to reduce public expenditures related to those services.

Under the bill, the New Jersey Economic Development Authority (EDA) would establish a pilot program to guarantee loan agreements among lenders, eligible nonprofit organizations, and public sector entities. The loan agreements would:

1) provide an eligible nonprofit organization with direct funding from a lender in exchange for the provision of public health care services to a public sector entity;
2) require the public sector entity receiving public health care services to make defined payments to the lender in an amount proportional to the amount of savings generated by the provision of public health care services; and

3) authorize the lender to receive loan repayments from the public sector entity in exchange for the provision of funding to an eligible nonprofit organization. In the event that the anticipated savings are not achieved, the EDA is to provide a loan guarantee for the lender.

The EDA, lender, and eligible nonprofit organizations would also be required to establish a method of measurement and verification that ensures health care services were performed, calculating any public sector savings resulting from those services, and determining any interest rates or payments applicable to the agreements. The bill allows the guarantees issued by the EDA to be up to 100 percent of the value of the loan agreements, with loan amounts not to exceed $3,000,000 per year or $15,000,000 in the aggregate over the five-year pilot program period.

The bill establishes a non-lapsing, revolving fund called the "social innovation loan fund" (loan fund) which is to be used to guarantee pilot program loans to fund the loan program and to pay for expenses related to the administration of the loan guarantees. The loan fund may be credited with monies from state appropriations, public or private donations, grant funding, and loan guarantee program fees. The EDA is not to issue a loan guarantee in an amount greater than the available and committed moneys in the loan fund.

The bill requires the EDA to solicit grants from philanthropic organizations or other private sources for the establishment and administration of the pilot program and capitalization of the loan fund.

"The legislation will be the first of its kind in New Jersey to fund healthcare initiatives in such a way," said Johnson (D-Bergen). "This pilot program could open the door for similar programs to generate much-needed capital for a number of initiatives throughout our state and across the country."

"We need to look at different ways to fund public policy needs in this difficult economy when many working class families are struggling to make ends meet," said Burzichelli (D-Gloucester/Salem/Cumberland). "If this type of legislation can open the door to funding needs without relying on taxpayers, then it must be explored."

"This is an innovative way to address societal challenges without placing an added burden on taxpayers by shifting the financial responsibility of implementing these programs from the public to private investors," said Pintor Marin (D-Essex). "It reduces the shared cost of healthcare, while improving people's health and well-being."

Under the bill, provision of the guaranteed loan also requires an agreement among the parties establishing a method of measurement and verification that ensures that health care services were performed, calculating any public sector savings resulting from those services and determining any interest rates or payments applicable to the agreements.

The bill also establishes the "New Jersey Social Innovation Study Commission" (study commission) within the EDA to assist the EDA in administering the pilot program and issue annual reports concerning the pilot program. It requires the authority to oversee the study commission, to determine the membership and size of the study commission and to appoint members to the study commission. It specifies three statutory members of the commission: the Director of the Office of Faith Based Initiatives in the Department of State, a representative from the Department of Health and a representative from the Department of Human Services.

The bill was released by the Assembly Commerce and Economic Development Committee.